The Bank of Canada has once again opted for a 0.5 percentage-point interest rate cut.
In its final announcement of 2024, the central bank brought its key rate down to 3.25 per cent.
There was also a half-point cut in October.
The bank was widely expected to make another significant cut amid gloomy jobs figures released earlier this month, with an unemployment rate of 6.8 per cent.
Inflation was at its target rate of two per cent in October. The bank explained that it expects inflation to remain at that rate "over the next couple of years."
In its statement accompanying the rate decision, the bank said consumer spending and housing activity have "both picked up, suggesting lower interest rates are beginning to boost household spending."
It added that the Trudeau government's GST holiday – set to kick in on Dec. 14 – will "temporarily lower inflation," but that will end on Feb. 15 when the policy concludes.
The bank also remarked upon the federal government's plans to reduce immigration numbers over the next few years, explaining: "Reductions in targeted immigration levels suggest GDP growth next year will be below the Bank’s October forecast. The effects on inflation will likely be more muted, given that lower immigration dampens both demand and supply."
Meanwhile the Canadian dollar, hovering at around 70 US cents, could suffer even more as the gap between Canadian and US interest rates grows.
The US Federal Reserve federal funds rate is at 4.5–4.75 per cent, though a 0.25-point cut is widely expected next week.
That would still leave the US rate about one point higher than Canada’s, potentially making the US more attractive to savers and investors.
That could also drive up demand for the US dollar compared with the Canadian dollar, meaning the loonie could lose more value against the greenback. That would mean imports would increase in price for Canadian businesses.
The bank only briefly mentioned the dollar, however, writing in its statement: "Global financial conditions have eased and the Canadian dollar has depreciated in the face of broad-based strength in the US dollar."
The bank of Canada's next rate decision is set to be announced on Jan. 29.
